The European Union’s executive arm will propose a new fiscal stimulus package of as much as 750 billion euros ($823 billion) in an unprecedented push to overcome the deepest recession in living memory, according to a tweet by European Commissioner Paolo Gentiloni.
Of the total amount, 500 billion euros from the package will be distributed in the form of grants to member states, and 250 billion euros could be available in loans, according to an official, who asked not to be named, in line with policy. To fund the package, the EU would borrow up to 750 billion euros on financial markets.
Italy would get 81.8 billion euros under the proposal, Spain 77.3 billion euros, Greece 22.5 billion euros and France 39 billion euros, according to another official familiar with the details. Peripheral EU bonds rallied on the news.
Italian bonds rallied, with 10-year yields falling eight basis points to 1.47%, the lowest level in almost two months, while German securities erased gains. The euro snapped losses on the proposal, and was at $1.0979 as of 10.30 a.m. in London.
The long-anticipated blueprint, which will be presented Wednesday by European Commission President Ursula von der Leyen, will form the central plank of the EU’s response to the devastating impact of the coronavirus pandemic. The outbreak, which has claimed hundreds of thousands of lives around the world, has hit every European economy, with the worst-affected predicted to contract by almost 10% this year.
The money would largely fund investment and reforms, while some funds will also go to significantly beef up healthcare and to the EU’s poorest regions to help them catch up. The bloc will also offer guarantees from its budget in order to boost private investments via temporary equity support to viable companies or more capital for sectors of strategic importance such as critical infrastructure, technology and healthcare.
An accord on the plan will require the backing of all 27 EU members and could be a watershed moment for the bloc, where financial burden sharing has long been one of the thorniest issues that’s held back deeper integration. It could quell concerns that a lack of solidarity is empowering populists threatening the EU’s very survival.
An agreement could also relieve some of the pressure on the European Central Bank, which has so far taken the lead in the EU-level response, pledging to buy more than a trillion euros of debt to stabilize markets.
The commission’s proposal follows a joint push by France and Germany earlier this month that asked for the EU to borrow 500 billion euros that could then be allocated as grants. The initiative marked a stunning volte-face for Berlin and signaled a major shift toward bolstering the union’s financial power.
Giving help via grants rather than loans has been a key ask by hard-hit EU countries such as Italy and Spain, where increased borrowing to fund the recovery could quickly push debt to unsustainable levels. But even with Germany’s blessing, the plan is bound to face pushback by the bloc’s more stringent members as well as small nations in the region’s east.
Following the proposal by Paris and Berlin, Austria, Denmark, the Netherlands and Sweden released their own blueprint that would instead offer loans to countries rather than grants and would expire after two years, while they’ve insisted that any help has conditions attached to it. As net donors to the EU budget, the so-called Frugal Four are sceptical of a major borrowing spree that could leave their taxpayers on the hook for decades to come.
Meanwhile, poorer peers in central and eastern Europe are also wary of being asked to dole out more money, especially when they risk having funds redirected from them to richer – though harder-hit – nations.
Still, even some of these hardline governments have signaled in recent days that they are open to discussing recovery plans without dismissing any outright, leaving the door open to a possible compromise.
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